Here's An Interview With The CEO Who Missed Out On The $3.2 Billion Apple-Beats Deal (AAPL)

Jillian D'Onfro, provided by

Published 10:27 am, Sunday, May 11, 2014

Apple is in negotiations to buy Beats Electronics, the audio company that's known for its pricey Beats By Dre headphones, for an astounding $3.2 billion.

Although you've undoubtedly seen the large, trendy headphones a time or two, you may never have heard of Monster, the audio company responsible for creating them.

Last year, Gizmodo's Sam Biddle wrote an exclusive story about how Monster inked a deal that cut it completely out of the company in 2011 when Beats sold a 51% stake to HTC. Because of those negotiations, Monster will see absolutely nothing from the Apple deal, even though Monster's Noel and Kevin Lee designed and developed the very first pair of Beats headphones and did the engineering and technology distribution for the company's first five years.

Business Insider talked to Monster's CEO Noel Lee about how he felt upon first hearing the news about this new potential acquisition.

"The immediate reaction was, what a deal for Jimmy and Dre!" Lee said. "We're very happy that they recieved such a high valuation. And I'm thinking of what that means for Monster's valuation."

Even after the split from Beats in 2011, Monster continued to create headphones, including its latest product line called Pure Monster Sounds. Lee said that it has spurred him to think that maybe Monster should be looking for a partnership with a company like Apple.

"That technology that we designed for Beats, that Beats still uses now, it's a little dated, in my opinion, and in the opinion of a lot of people on the internet," Lee said. "Our latest technology takes the enjoyment of music to the next level. So I think that this deal could shine a light on that."

For example, Pure Monster Sounds headphones sound less bass-heavy than Beats headphones do, Lee said. Ultimately, he said although that he has no regrets about Monster's partnership with Beats, he does wish that his company had gotten more out of the relationship.

"I feel that we weren't recognized," he said. "We got erased from the history of Beats. We were the founders. Most of the public has only heard a one-sided story and they're not even aware of Monster's participation. And they're not aware that we've gone onto bigger and better things."

In a nutshell, here's how Monster made what Biddle called one of the "all time worst deals" in tech history:

Noel Lee, an audiophile and an engineer, started Monster in his family's basement in 1979, making speaker cables that produced superior sound. The company expanded into HDMI cables, surge protectors, and other audio products. Kevin Lee, Noel's son, joined in the business, and after Monster's attempt at making high-end speakers flopped, they decided to try to start making headphones.

While the headphone prototypes were in the works, Kevin flew out to LA to find pop star partners for a proprietary high-definition audio format Monster was working on. There, he met Jimmy Iovine from Interscope records. Not long after, Iovine and Dr. Dre approached Monster about making electronics and the Lees, who had just experienced a failure with speakers, convinced them that headphones were the way to go.

But Monster had no idea how to handle itself when making a contract. Kevin had no business experience besides working at Monster and was sent to try to work something out alone. Interscope made a lowball offer that Monster couldn't accept, so the company lost the deal.

That is, until six months later when Interscope came back to the Lees after a failed partnership with SLS Audio.

Take two went as sloppily as take one. Kevin built an entire headphone product line before any partnership was even inked, spending millions of Monster's money without telling his dad. Because of all the money he'd spent, Kevin knew he had to seal some sort of deal, so he signed a complicated contract that would give Iovine and Dr. Dre permanent ownership of anything that Monster developed.

Although Beats Electronics denies that Monster had any role in the industrial or audio design of the headphones, the Lees maintain that Beats had no engineers and that they made the headphones possible. (Gizmodo has a picture of the first product tested by Dre).

When HTC bought part of Beats in 2011, Monster lost its patents, trademarked designs, the name ... everything. Monster was out for good.

That means the company will see nothing from this potential $3.2 billion acquisition.